Budget 2013: No direct impact on petroleum products sector

The following announcements have been proposed in the Union budget 2013-14:

No change in the peak rate of basic customs duty of 10% for non-agricultural products.

No change in the normal rate of excise duty of 12% and the normal rate of service tax of 12%

Surcharge increased from 5% to 10% on domestic companies whose taxable income exceeds Rs 10 crore. In the case of foreign companies, who pay the higher rate of corporate tax, the surcharge will increase from 2% to 5%.

In all other cases such as dividend distribution tax or tax on distributed income, current surcharge increased from 5% to 10%. Additional surcharges will be in force for only one year i.e. FY’14

Education cess for all tax payers shall continue at 3%

Companies investing Rs 100 crore or more in plant and machinery during the period 1.4.2013 to 31.3.2015 will be entitled to deduct an investment allowance of 15% of the investment.

Concessional rate of tax of 15% on dividend received by an Indian company from its foreign subsidiary proposed to continue for one more year. Further, the Indian company shall not be liable to pay dividend distribution tax on the distribution to its shareholders of that portion of the income received from its foreign subsidiary.

Increase the rate of tax on payments by way of royalty and fees for technical services to non-residents from 10% to 25%. However, the applicable rate will be the rate of tax stipulated in the DTAA (Double Tax Avoidance Agreements)

Work on draft GST Constitutional amendment bill and GST law expected to be taken forward. sum of Rs 9,000 crore is set apart in the budget towards the first instalment of the balance of CST compensation

A final withholding tax at the rate of 20% on profits distributed by unlisted companies to shareholders through buyback of shares

Industry Expectations – Not fulfilled

Definition of infrastructure sector in the explanation to Section 80-IA of the Income Tax Act should be amended to include exploration and refining activities. Accordingly, exploration and refining undertaking may be allowed deduction for 10 consecutive assessment years as against 7 years at present out of 15 years period.

As the completion of various refinery projects is likely to get delayed, it would be appropriate that the validity of the deduction be extended from 31.03.2012 to 31.03.2015 in order to ensure that the intended benefit of deduction is availed for the said projects

Expects removal of National Calamity Contingent Duty on crude oil levied at Rs 50 per MT

Expect reduction in excise duty rate on branded HSD/MS in line with reduction made in the normal HSD/MS,

Expect ATF should be given a declared goods status whereby sales tax on ATF could be fixed a ceiling of 5%.

Petroleum products including crude oil and natural gas to be covered under Goods and Services Tax

Budget impact

No direct impact on petroleum products sector

Stocks to watch

RIL, IOCL, BPCL, HPCL

Outlook

Union Budget 2013-14 was neutral for the petroleum product sector in absence of any announcement targeted at the sector. As regards subsidy 2012-13 petroleum subsidy has been increased to Rs 96880 crore from earlier budget estimate of Rs 43580 crore. Petroleum subsidy for 2013-14 budget estimates is Rs 64998 crore.

The domestic demand of petroleum products is expected to increase from about 147.2 MTPA (Million tonne per annum) in FY'12 to 186.21 MTPA by FY'17. The planned investment by the PSU oil companies is about Rs.154416 crore in the 12th five year plan. Out of this planned investment in refining sector is Rs.88211 crore.